MercoPress. South Atlantic News Agency

Uruguay's banks will reopen today

Uruguay on Sunday received a short-term loan of up to $1.5bn from the US and imposed limited restrictions on bank withdrawals in an effort to avert a collapse of its once-vaunted financial system.

The US bridge loan, which is intended to guarantee dollar-denominated short-term deposits in Uruguay against a run on the banks, came as the International Monetary Fund announced it would accelerate and increase its funding for Uruguay to help stabilise the country's financial system.

The IMF, the Inter-American Development Bank and the World Bank pledged to advance $1.5bn to Uruguay immediately, and to add another $800m to bring total commitments to $3.8bn.

The bridge loan, which coincided with the arrival of Paul O'Neill, US Treasury secretary, in the crisis-hit region, marks a deepening of US efforts to avert a further downturn in the region, and a shift away from the administration's hands-off approach.

The US money will come from the Treasury's exchange stabilisation fund, the same vehicle used in the controversial bailout of Mexico in 1995.

But Treasury officials emphasised that, unlike the Mexican bailout, the loan is virtually risk-free and will be repaid when new international funds become available next week.

Uruguay's banks, which were due to reopen today Monday for the first time in six days, have lost more that 40 per cent of their deposits as the crisis of confidence in Argentina spread. Uruguay's Congress yesterday approved an emergency bill that would restrict withdrawals of dollar-denominated, fixed-term deposits at the two publicly owned banks. In contrast to the curbs imposed in Argentina last December - which set off riots that eventually toppled the government - accounts at private banks will be largely unaffected.

Alejandro Atchugarry, Uruguay's economy minister, said he was asking for a "sacrifice" from the public but insisted the plan was the "only solution" to the country's deep problems.

In a statement on Sunday, Mr O'Neill said that Uruguay has implemented sound policies by embracing free markets, open trade and low inflation.